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How to Rent With Bad Credit
By Talon Abernathy MONEY RESEARCH COLLECTIVE
A bad credit score can act as a barrier to renting an apartment or a house. Although renting and taking out a loan are two very different things, many landlords and property managers consider your credit score during the application process. A good credit score demonstrates a history of making important bill payments on time – and that’s something that your prospective landlord will want to see.
But if you’re trying to overcome credit issues, this can present an obstacle to apartment hunting. Fortunately, there are ways to get around a poor credit score. Continue reading to learn how to rent with bad credit.
What are the challenges of renting when you have a bad credit score?
Many landlords may reject your rental application outright if you have bad credit. Even those who accept applicants with bad credit may still reject you if another applicant with better credit comes along. Others might ask for a larger security deposit or additional information, such as your financial history or proof of income.
If you have bad credit, you may find it difficult to rent in certain neighborhoods and apartment complexes. Your commute may be longer, and the available rental units might not be as nice. Renting with a low credit score will require you to expend more time and effort than if you have a good credit score.
5 tips for bad credit renting
Are you wondering, “Can I rent a house or an apartment with bad credit?” The answer is yes, but you’ll likely have to jump through a few extra hoops. Use these tips to help convince your future landlord that you’re a trustworthy renter regardless of your credit score.
1. Get a co-signer
A co-signer can reduce your landlord’s fears if you’re trying to rent with bad credit. Co-signers agree to be held equally responsible for your rent payments. If you fail to pay your rent on time, your landlord can go after your co-signer for your monthly rent. Only ask someone to co-sign for you if you have a strong, trust-filled relationship. People commonly ask family, close friends and romantic partners to cosign for them.
Your co-signer should have excellent credit. Also, your co-signer doesn’t need to live with you. Some landlords will even allow you to use an out-of-state relative as a co-signer.
2. Provide a security deposit
Some landlords will ask you to provide a larger-than-normal security deposit if your credit score is below a certain threshold. This protects them if you fail to pay your rent. Landlords might ask for your security deposit to cover two or three months’ rent. Some landlords might see a weak credit history as evidence of poor decision-making in general. This may cause them to worry that you’ll be more likely to leave costly damages behind when you vacate the apartment.
3. Consider looking for someone who is subletting
If you’re wondering where to rent with bad credit, consider looking for a sublet. Individuals subletting their apartments tend to be more relaxed than property managers and landlords. Often, they lack the expertise or desire to run a credit check. Even if they are aware of your poor credit, they may be more likely to make an exception if you can show that you’re reliable and trustworthy. Having a steady income or a strong personal connection with the subletter will help you here.
4. Find someone to vouch for you to your potential landlord
One way to get rentals with bad credit is to ask a trustworthy person to vouch for you. Ideally, this shouldn’t be a close friend or family member. Instead, look for professional acquaintances. A previous landlord will be the best person to speak up on your behalf since they have direct experience with your renting habits.
However, if you can’t find a past landlord to help you, consider asking a current or previous employer for a recommendation. You can even ask a professor or teacher if you’re still in school or recently graduated. Securing a positive recommendation is a low-cost way to get around bad credit renting.
5. Apply for apartments or homes whose owners don’t do credit checks
One way to get around bad credit when applying to rent a house or apartment is to target rentals that don’t involve credit checks. Many small-time landlords and mom-and-pop operations don’t bother to run credit checks. They may be more concerned with factors like your current income and positive references from past landlords or employers. If you choose to follow this step, avoid large property management firms. They are much more likely to run credit checks.
Some landlords will advertise that they don’t conduct credit checks. They know this will help them attract more applicants. You’re more likely to find landlords who don’t run credit checks on websites like Craigslist or through local Facebook pages for prospective renters.
What kind of credit is typically needed by the average applicant?
Personal credit scores are expressed as a number between 350 and 850, with 850 representing a perfect score. Credit scores are usually calculated using five major factors:
- On-time payment history, 35%
- Outstanding balances, 30%
- Credit history length, 15%
- New credit, 10%
- Credit mix, 10%
You might run into credit score variations. That’s because there are two major credit score formulas: FICO and VantageScore. Of the two, FICO is by far the most popular and the one we’ll use when discussing personal credit scores here.
Minimum score
FICO divides credit scores into five bands. These are:
- Poor: 300 to 579
- Fair: 580 to 669
- Good: 670 to 739
- Very Good: 740 to 799
- Exceptional: 800 to 850
Most landlords will require your score to be in the “good” range. That means they’ll want to see a minimum score of 670. However, some landlords will be fine with a score in the fair range, especially if it’s close to good. Most landlords will be hesitant to rent to an individual with a poor credit score.
Ideal score
The ideal score will be in the very good to the exceptional range. Once you get into the very good range, raising your credit score becomes more difficult. For example, even if you have never missed a payment, it’s still unlikely that you’ll have a perfect score. You may not even have an exceptional score. That’s because the FICO model looks at factors like credit history and credit mix. Younger individuals and people who have only ever held one type of credit will be at a disadvantage.
Landlords understand this. As long as your score is above 740, you should have few problems renting a house or apartment.
How much does credit affect your rental application?
A good credit history is just one of several factors landlords look at when deciding who to rent to. While some landlords weigh credit quite heavily, they can often be persuaded to look past it if you have a steady income or a large savings account. In some instances, getting out ahead of the credit check can help. Explaining why your credit is poor, and your steps to fix it will help convince some landlords that you’re a reliable tenant.
You can mitigate the impact of poor credit by displaying responsibility through other means. For example, offering to set up automatic payments can help relieve a landlord’s reservations about you. This is especially true if you can show that you have ample savings. Landlords like automatic payment systems because they lower the chance that you’ll skip out on a bill or pay your rent late.
If you can show a steady income, some landlords will be more willing to look past a subpar credit score. A common rule of thumb states that your gross income should be at least three times your rent. For example, if your monthly rent is $1,500, you should earn at least $4,500 monthly or $54,000 annually. Earning more than this figure will help convince your landlord that you’re a safe bet. Someone with an annual income of $85,000 may be able to convince a landlord to rent to them despite a lackluster credit history.
It’s important to note that landlords care about certain variables that affect your credit score more than others. Landlords will find foreclosures and bankruptcies particularly alarming since they show that you have a history of being incapable of meeting your debt obligations. Charge-offs are also a red flag. A charge-off occurs when a past-due bill is sold to a collections agency. This cannot happen until at least 30 days have passed since the billing date.
However, landlords won’t take as much issue with more benign issues such as not having a good credit mix or having a short credit history. Landlords might overlook a history of making late payments if you always pay in full within a week of the billing date. However, they may ask that you set up an automatic billing system to ensure you make your rent payments on time.
A bad credit history isn’t the end of the world
Don’t let a bad credit score stop you from finding a rental that fits your needs. It’s possible to take your credit score from poor or fair to good or even excellent inside of a year. In some cases, you may achieve a good credit score in just months. First, you should determine what’s holding your credit score back.
You can request a detailed copy of your credit report free from any of the three major credit agencies once per year. It’s a good idea to order all three since occasionally one will make an error (more on that below). Once you have your detailed credit report, you can see exactly what’s depressing your credit score. Late and missed payments tend to have the most dramatic impact on your score. If you have a history of making late payments, consider setting up an automatic bill pay system.
Another common factor that drags down people’s credit scores is holding on to too much debt. The credit utilization rate refers to the amount of debt you hold relative to your credit limit. For example, if you have $5,000 in credit card debt and your total credit limit is $10,000, your utilization rate is 50%. Credit score formulas favor credit utilization rates of 30% or below. However, aim for a utilization rate of 10% or less for best results.
Credit utilization encompasses all your revolving lines of credit, such as credit cards and personal lines of credit. If you have two credit cards each with a $10,000 credit limit and you’re holding $5,000 in debt on one credit card and $1,000 on the other, then your total credit utilization rate is only 30%. To improve your utilization rate, pay off your credit card balance in full every month. You may also consider requesting an increase in your credit limit.
A recent survey suggests that up to a third of Americans may have a mistake on one of their credit reports. It’s important to monitor each of the three credit reporting agencies. If you spot an error, such as a paid bill marked as delinquent, you can contact the relevant credit agency and request that they fix it. If you’re intimidated by the thought of navigating the credit agency bureaucracy by yourself, consider hiring a credit repair company. These businesses specialize in working with people to remove errors from their credit reports.
Fixing your credit can save you more than money. Raising your credit score could lower your car insurance rates and make you eligible for certain jobs and career paths. If you’d like to learn more about how you can achieve a better credit score, learn about what hurts your credit score.
Talon Abernathy is a freelance writer, former teacher, and author. He has written on a broad variety of topics including SaaS for business, the legal industry, and personal finance and investing. He excels in simplifying complex topics while writing with an eye toward SEO and reader satisfaction.